Basic Upstream Petroleum Economics and Production Sharing Contracts

Program Objectives

This 4-day course presents the basic concepts of financial economics to understand the theories and methods used to value oil and gas prospects. The course covers the fundamentals of discounted cash flow analysis, capital budgeting techniques, international fiscal system, production sharing contract, tax and royalty concession models and understanding uncertainty and risk in exploration and economic evaluations. Practical problems and exercises will be used throughout the course. 
This course answers this question in four steps: capital budgeting techniques, such as net present value and internal rate of return; cash flow of a project, including production sharing contracts; fiscal system analysis – the effect of government regimes on return on investment and risk analysis – how to take into account investment uncertainties.
Course Outline
Day 1
  • Introduction 
    • Understanding the Terms 
    • Time Value of Money 
    • Capital Budgeting Techniques 
    • Basic tax Structure 
Day 2
  • Evaluation model
    • Types of projects 
    • Selection and ranking criteria for projects 
    • Capital expenditures and operating expenses 
  • Cash Flow Analysis 
    • Project Components
    • Economic Components 
    • Taxation and other Government Components 
    • Net Cash Flow determination

Day 3
  • Petroleum Fiscal Systems 
    • Types of Systems 
    • Understanding the fiscal terms 
    • Economic Model building 
    • Construction of simple net cash flow spreadsheet 
    • Sample project evaluations 
  • Production Sharing Contracts
    • Understanding Production Sharing Contract
    • PSC Flow Chart 
    • Basic Elements 
Day 4
  • Risk Analysis
    • Introduction to risk and uncertainty
    • Probability and statistics and risk analysis methods. 
    • Overview of Monte Carlo analysis 
    • Understanding the results of risk analysis 
    • Making the recommendation 
  • Case Study: Indonesian Production Sharing Contract